How To Make Money In This Market

Below is an excerpt from a regular commentary that originally
appeared at Treasure
Chests for the benefit of subscribers on Thursday, October 5th, 2006.

Top of the morning to you all. That's my Irish blood at work this morning.
I'm not feeling much better than yesterday, but there are a couple of charts
I want to show you. And a big warning about shorting the stock market during
'manic moments'.

The news just keeps getting worse and worse according to the US propaganda
machine. There is never a shortage of bad news, but some times are worse than
others. Now, the potential wars in Korea and Iran are the big worry. And in
the economy, it's the collapsing housing bubble, and the consumer. Theses are
the reasons options / risk salesman from the major brokerages site to fund
managers when they phone on sales calls to meet their quotas. The brokers need
that premium to meet earnings goals. Next year they will not be so successful
in selling volatility insurance, which is why one can expect more of it.

But this year the squeeze is on, where no sooner do brain dead hedgers have
their insurance on when they are faced with yet another melt-up due to the
'who me - no fear' 30-year old proprietary traders at the same brokerages selling
them the insurance. This ensures they will never collect on it buy jamming
stocks higher prior to options expiries. What a racket, no? Anyway, knowing
this is occurring, and that it could go on for some time, unless you are suicidal,
do not step in front of this train, because stocks could keep going up until
spring of next year, or longer, who knows.

We can speculate that a seasonal inversion looks possible, because unlike
the '99 - '00 sequence, where stocks corrected from the summer into mid-October,
this year they rallied through this period. But hey, that's only speculation.
What's more, if we do see a downturn soon, they'll blame it on the Republicans
losing both houses (i.e. Democrats are tax and spend as opposed to borrow and
spend), where the market will not like the prospect of higher taxes being paid
by an already over-burdened consumer. But hey again, won't that cause speculators
to buy more puts, because its bad news. Or, perhaps they are doing that right
now in anticipation. What a mess, no?

All such speculations aside for now however, do we not have a way of determining
probabilities associated with possible tops? Yes, in fact we do. As you know,
open interest put / call ratios will tell us when it's safer to short the stock
market from a sentiment perspective. And then there are short ratios. And we
also have technical analysis to aid us as well. For example, here is a chart
that suggests trade is approaching the pinnacle of a defining risk adjusted
rising wedge in the S&P 500 (SPX), derived by dividing it by it the CBOE
Volatility Index (VIX). (See Figure 1)

Figure 1

And who knows maybe this will be a significant top, but please notice momentum
in the parabolic move is just going vertical, so the SPX could go all the way
back to form a double top before it's all over. What's more, because the Dow
is now extending 5-waves of Primary Degree with the price action from yesterday,
it should be recognize that the SPX running back up to previous highs to accomplish
the same becomes a statistical probability on a wave related basis. The fact
tech stocks, as measured by the NASDAQ, suffered a Super-cycle Degree blow-off
and correction only a few years back, means the SPX will likely not extend
much of a move past previous highs because of cross populations (at a minimum
more time is required to recover after such a sequence), but based on the current
set-up, a double top sure looks possible. Thusly, anybody getting short here,
even if using LEAPS, runs the risk of a total loss of investment capital in
the venture.

THUSLY, DO NOT SHORT THE STOCK MARKET NOW.

And as for precious metals, who needs them right? At least that's the attitude
kids in charge of all that money over at the brokerages have right now. Junk
paper of all varieties sure is in demand though. That being said, not everyone
is foolish with their money, whatever that means today, where it appears precious
metals, and their related equities, are attempting to bottom here. Just take
a gander at this chart of Newmont (NEM: NYSE). It appears poised to reverse
some important diamond breakdowns that could give it life. Could this be the
defining moment in the Primary Degree B correction? (See Figure 2)

Figure 2

While one never knows until much later, as you can see above, it's always
possible. Again however, if you are buying here, as per our suggestion yesterday,
please do not buy call options. Not only do you run the risk of complete losses
if stocks take a dive in coming months, but it should be understood you actually
increase this possibility from a sentiment perspective by doing so because
put / call ratios will remain low if too many do the same, cementing a likelihood
of a negative outcome. Therein, if some of our recommended juniors do not have
enough upside potential and volatility in the trade for you, then I suggest
you seriously consider finding another way of trying to get ahead in this game,
because options generally work out only 10-percent of the time. And it would
be a shame to see this outstanding opportunity in gold in front of you, but
because of a reckless and greedy investment policy, not be in the game at the
end to collect your rewards.

THEREFORE, DO NOT BUY OPTIONS IF YOU ARE GOING LONG PRECIOUS METALS OR RELATED
EQUITIES.

To continue past this point in our analysis here today would be a disservice
to our subscribers considering they pay for our thoughts on such matters. For
this reason then, we must cut things off here. But we invite you to visit our
site and discover more about how we approach market analysis and investing.
The above is only a small example in this regard. If you wish, you can check
us out by either scanning our free
material, or subscribing to
our service of course. It all depends on how far you want to look down that
rabbit hole, where we would be very happy to welcome you on board.

Give us a try. The treasures you find inside might pleasantly surprise you.

And of course if you have any questions or criticisms regarding the above,
please feel free to drop
us a line. We very much enjoy hearing from you on these matters.

Treasure Chests is a market timing service specializing
in value-based position trading in the precious metals and equity markets with
an orientation geared to identifying intermediate-term swing trading opportunities.
Specific opportunities are identified utilizing a combination of fundamental,
technical, and inter-market analysis. This style of investing has proven very
successful for wealthy and sophisticated investors, as it reduces risk and
enhances returns when the methodology is applied effectively. Those interested
in discovering more about how the strategies described above can enhance your
wealth should visit our web site at Treasure
Chests.

Disclaimer: The above is a matter of opinion and
is not intended as investment advice. Information and analysis above are derived
from sources and utilizing methods believed reliable, but we cannot accept
responsibility for any trading losses you may incur as a result of this analysis.
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